Consumer and Financial Decisions

• Upon completion of this topic, you will be able to identify and research issues encountered when making consumer and financial decisions.
• Upon completion of this topic, you will be able to investigate laws and mechanisms that protect consumers, including the process of consumer redress.
• Upon completion of this topic, you will be able to examine a range of options related to the personal financial decisions of a consumer.
• Upon completion of this topic, you will be able to assess responsible financial management strategies.

The Nature of Commerce

• Commerce is active and full of change.
• Surviving in the competitive world of commerce requires wise decision-making.
• Improving your knowledge of how commerce operates enables you to make wise consumer decisions.

Commercial Choices

• We make commercial choices daily, including what to buy or produce, where to live, what career to follow, where to invest funds, and how much to save.

Consumers and Their Needs vs. Wants

• A consumer is someone who purchases goods and services to satisfy their needs and wants.
• Needs are essential items for survival, such as food, clothing, and shelter.
• Wants are things we like to have but are not essential, such as a car, phone, or computer.
• Wants are unlimited.

Goods vs. Services

• Goods are tangible items that are produced and can be physically touched, like a television or a car.
• Services are actions or activities that one person does for someone else in return for payment, like hairdressing, medical assistance, or personal training.

Durable vs. Non-Durable Goods

• Durable goods can be used many times, for example: a car or television.
• Non-durable goods can be used only once, for example: a sandwich or a liter of petrol.

Opportunity Cost

• Opportunity cost is what an individual gives up in order to satisfy a need or want.
• Saving $100 for a car instead of buying a video game means the opportunity cost is the video game.

Resources for Production

• Producers use resources to manufacture the goods and services that consumers desire.
• Land includes natural resources such as forests, coal, and fertile soil.
• Labor is the physical and mental effort of people who are working.
• Capital includes goods used to make other goods, like a tractor used to produce crops.
• Enterprise is the ability to combine land, labor, and capital to earn a profit.
• These resources are limited or scarce, requiring producers to make decisions to provide consumers with the goods and services they desire.

Key Factors Affecting Consumer and Financial Decisions

• Good pre-sales and after-sales service makes consumers feel valued, encouraging repeat purchases, while poor service has the opposite effect.
• Consumers want the best value for their money: the lowest price for the best quality.
• The Competition and Consumer Act 2010 implemented per-unit pricing to help consumers compare prices easily, even for different-sized containers.
• Convenience can be a major factor affecting consumer decisions, like traveling time to a retail outlet, the number of stores in a shopping complex, and suitable shopping hours.
• Convenience also relates to being able to shop online or use an app.
• Marketing and advertising play an extremely important role in influencing consumer decisions.
• The average consumer is exposed to an estimated 500 marketing strategies every day.
• A person's gender influences some types of purchases.
• Female consumers may spend more on cosmetics than males.
• Catalogs for Mother's Day and Father's Day often display gender-specific products.
• Our wants change over time.
• A baby may want a toy, a teenager may want a mobile phone, and an 18-year-old may want a car.
• Disposable income refers to the amount of money that households have available for spending and saving after income taxes have been accounted for.
• A buyer with higher disposable income will spend more on luxury or lifestyle items and on vacations and tours.
• Consumers are becoming more aware of environmental pollution.
• Consumers may be influenced to purchase products with minimal packaging or packaging that can be recycled.
• Social media includes websites and applications that enable users to create and share content or to participate in social networking.
• Social influencers with a large audience on social media can influence their followers' purchasing decisions.
• Cultural factors are the set of basic values, perceptions, wants, and behavior of a particular community or group of individuals.
• An individual's culture influences the way they behave and has a significant effect on their buying decisions.

Whether to Spend or Save?

• The most basic financial decision consumers need to make is how much of their income to save and how much to spend.
• Income is money received on a regular basis from work, property, business, investment, or welfare.
• To gain the greatest possible satisfaction from their income, many people develop a financial plan, or budget, to improve their wellbeing or quality of life.

What to Buy?

• Shopping around to obtain the best deal is referred to as comparison shopping.
• It is essential to compare the price, quality, availability, and after-sales service.

Comparison Shopping: Eight Rules

• Check prices.
• Know the market.
• Shop around.
• Don't be pressured into buying.
• Read any guarantees.
• Inspect goods carefully.
• Identify your needs.
• Avoid impulse buying.
• Generic products lack a brand name, are usually cheaper, and of acceptable quality.

Types of Shops

• Department stores, discount variety stores, and large specialty stores are usually cheaper than small, independent retailers because larger stores can carry more stock.
• Small retailers often focus on high levels of assistance and after-sales service.
• Well-known, highly reputable brands tend to be more expensive than those brands that are not well-known.

Choosing Where to Buy

• Once you have decided what you want to buy, the next decision is where to buy the product.

Distribution Chain

• Products typically pass through a distribution chain: manufacturer, wholesaler, retailer, and consumer.
• Each seller needs to make a profit, so the final price consumers pay depends on the price the seller paid and the profit he or she makes.

Range of Locations and Sources

• Consumers can access a wide range of locations and sources to purchase products, including:
  • Retail Stores:
    • Convenience stores
    • Department stores
    • Discount department stores
    • Specialty stores
    • Supermarkets/hypermarkets
  • Non-Store Retail:
    • Mail order
    • Door-to-door
    • Party plan
    • Auction
    • Telemarketing
    • Internet shopping
    • Stall/marketplaces
    • Vending machines
• The type of product to be purchased will usually be the main facto influencing both location and source decisions.

Mail Order

• Mail order is a system of shopping in which the consumer completes and posts an order form, usually from a magazine or catalogue, and receives products through the mail.
• Purchases can be made by mail, fax, phone, or online.
• Advantages:
  • Greater range of products available than found in retail stores.
  • Convenience for consumers with a disability or those who live in remote communities.
• Disadvantages:
  • Risk of losing money if a business does not send the product.
  • Products being different in reality from the way they appear in the catalogue.
  • Experiencing problems tracing a business that uses only a post office box number if a refund is required.

Online Shopping

• The internet has revolutionized the way people shop, providing consumers with a whole new shopping experience.
• Advantages:
  • Increase in the range of sources from which you can buy.
  • Comparison shopping can be done from the comfort of your home and at a convenient time.
  • Product may be cheaper.
  • Allows for quick price comparisons.
  • Relatively quick delivery times, even from overseas sites.
  • Allows the use of mobile devices and apps, which make online shopping easier.
• Disadvantages:
  • A website may not be permanent, and tracing the owner if anything goes wrong may be impossible.
  • A delivery charge may be added to the price.
  • The return of a faulty product will take time and effort.
  • Supplying credit card details can be risky unless the site is secure.
  • The proliferation of scams and internet fraud.
• Smartphones and shopping apps can be used to undertake product research and make purchases.

Types of Retail Outlets

• While retailing has become much more complex and sophisticated in the twenty-first century, the basic idea has not changed.
• Buyers and sellers still come together in a marketplace, and products are exchanged for money.
• Convenience Corner Stores: Located in residential areas or attached to service stations.
• Specialty Stores: Specialize in one type of product or service or a limited range of a few products.
• Discount Variety Stores: Plain design and offer basic customer service.
• Factory Outlets: Often near the factory where the goods were manufactured.
• Department Stores: Sell a large range of products within the one store.
• Supermarkets: Large, self-serve stores.

Buying Locally, Regionally, Interstate, and Globally

• Consumers can purchase goods from another state or country.
• We live in a global world, rather than a world limited by national borders.

Different Payment Options

• A consumer can select from a variety of different methods of payment.

Cash

• Advantages:
  • Accepted almost everywhere.
  • Some stores offer a discount for cash.
  • No hidden costs (e.g., interest charges).
  • Reduced risk of getting into debt.
• Disadvantages:
  • Can be easily lost or stolen.
  • May not be safe to carry around.
  • If no ATM is available, a consumer may not be able to make a desired purchase if they don't have enough cash on them.
• Notes and coins are legal tender and must be accepted as payment for goods and services.

Credit

• Credit is the supply of money now in return for the promise of paying it back later.
• Advantages:
  • Avoid the necessity to carry around large amounts of cash.
  • Are a convenient payment method for online and telephone purchases.
  • Help you establish a good credit history.
  • Offer cheap use of funds, provided you always pay your balance in full.
• Disadvantages:
  • Can make it easy to overspend and consequently build up your debt.
  • Can be more expensive than other forms of credit, such as a personal loan.
  • Can damage your credit rating if you continually make late payments.
• Care should be taken with your credit card.
• If the card is stolen, you must ring the bank immediately and cancel the card.
• When ever you use credit there is one important thing to remember: buy now, pay MORE later, unless you manage the credit carefully by repaying the total balance owing before the end of the interest-free period.

Store Credit

• Some large stores or retail groups issue their own cards that operate like regular credit cards.
• These cards usually have higher interest rates and fewer interest-free days than regular credit cards.

PayPal

• Most online merchants accept PayPal as one of their methods of payment.
• PayPal is an intermediary whereby you end up paying for the goods using your credit card, bank account, or money stored in your PayPal account.
• PayPal's advantage lies with its security and ability to obtain a refund if a dispute about the transaction arises.

Electronic Funds Transfer: Debit Cards and BPAY

• Credit card: you use other people's money and are charged interest.
• Debit card: you are using your own money, by electronically accessing money already in your account.
• You pay no interest, only an account operating fee, and can spend up to your account balance.
• EFTPOS (electronic funds transfer at point of sale) is a computerized system in which money is transferred from a consumer's account to the business's account.
• BPAY is another type of electronic payment method that uses the telephone or internet to transfer funds from your cheque, savings, or credit card account to the account of the business you wish to pay.

Direct Debit

• By using a direct debit system, you can schedule bill payments from your nominated bank account.
• The bank automatically withdraws (debits) the funds from your account and electronically transfers the funds to the business requiring payment.
• This is a convenient method of payment that helps overcome the problem of forgetting to pay an account.

Cheque

• A cheque is a written communication ordering your financial institution, called the drawee, to pay a person a specific amount of money.
• The person being paid is called the payee.
• The person authorizing the transaction is termed the drawer.
• Advantages of using cheques include:
  • They are safer than carrying cash.
  • They can be posted safely.
  • Only the named recipient is able to cash the cheque, again making them safer.
• Disadvantages of cheques include:
  • They are not accepted everywhere.
  • Cheques take time to process and clear (more than a day).
  • Bank charges are involved with having a chequebook.
• A not negotiable cheque cannot be cashed by anyone other than the payee named on the cheque.

Lay-By

• When you buy goods using lay-by, you first pay a deposit, and then the store puts aside the good for you.
• You then make regular payments over a fixed period of time.
• Unlike cash or credit card purchases, you do not take possession of, or own the good, until you pay off the last installment owing.

Book-Up

• Book-up is credit provided by a retailer so that you can purchase goods from the retailer's store and pay the account at a later date.
• Advantages:
  • You can purchase goods and pay for them later.
  • Interest is not charged unless you apply for an extension of time.
  • You can spread your purchases over a week or fortnight.

Afterpay

• Afterpay is a digital service linked to a customer's credit or debit card and enables consumers to buy now, pay later.
• The service is available to consumers over 18 years and allows consumers to purchase something at the current price and pay this amount off in four equal installments every two weeks.

Ranking Payment Options

• Deciding on which payment option is most appropriate for you is very important.
• Your decision should be based on aspects such as your income, personal preference, privacy, fees charged, interest rate, convenience, and security.

Consumer Protection

The Need for Consumer Protection

• The majority of businesses are trustworthy, honest, and act ethically.
• Occasionally, consumers are not given a fair go in the marketplace.
• State and federal governments have passed laws to protect consumers.
• Two crucial pieces of protective legislation are the Competition and Consumer Act 2010 and the Fair Trading Act 1987.
• Under the Competition and Consumer Act, an unconscionable act by a seller is any practice that is just not reasonable, such as scams and rip-offs.
• The aim of any scam is to trick you into giving away money or your personal details.
• Remember the golden rule to help you beat scammers: If a deal sounds too good to be true, it probably is.

Beware of These Common Scams and Rip-Offs

• False and misleading advertising
• Referral selling
• Unordered or unsolicited goods
• Special prizes and offers
• Get-rich-quick schemes
• Pyramid schemes

False and Misleading Advertising

• Two of the most common false and misleading advertising techniques are:
  • Bait and switch advertising: advertising a few products at reduced prices to attract customers, then directing them to higher-priced items when the advertised products quickly run out.
  • Misleading advertising: using words that are deceptive or claiming that a product has some specific quality when it does not.

Referral Selling

• This illegal technique offers the consumer a special deal if they buy the product and supply the names of potential customers to the trader.

Unordered or Unsolicited Goods

• This practice involves sending unordered goods through the mail and then demanding payment for them.
• The Competition and Consumer Act 2010 protects you from having to pay for these goods.

Special Prizes and Offers

• You scratch the prize coupon to discover you have won a mystery prize.
• When you go to collect your prize, you are told you can receive it only if you purchase a certain number of goods.

Get-Rich-Quick Schemes

• A letter or email arrives offering you the chance to participate in the transfer of money from another country.

Pyramid Schemes

• The chain letter is the most common form of this type of scam.
• Participants are required to pay a joining fee with the opportunity of earning quick and easy money as they recruit new members.

Reasons for and Features of a Simple Contract

• A contract is a legally enforceable agreement between two or more persons or parties.

Features of a Simple Contract

• Three essential elements make a contract legally binding:
  • The offer
  • The acceptance
  • The consideration
• An offer is a proposal.
• It involves one of the parties offering something of value (for example, money) to the other party in the agreement.
• Acceptance occurs when the offeree agrees to the proposal.
• Consideration is the final essential feature required to form a valid contract.
• This stage requires each party to the agreement to give up something of value.

Legal Rights and Responsibilities of Consumers

Legal Rights of Consumers

• Consumers have four basic rights:
  • Safe products
  • Accurate product information and descriptions
  • Full disclosure of the terms of sale
  • Consumer guarantees and warranties are honored

Protective Legislation

• In 2011, a single, national consumer law, the Australian Consumer Law (ACL), was introduced, which operates using the Competition and Consumer Act 2010.
• The Act's main purpose is to protect consumers against undesirable business practices.

Consumer Guarantees

• The Competition and Consumer Act 2010 provides consumer guarantees on certain goods and services.
• These guarantees are a consumer's automatic legal right.
• Consumers are guaranteed that the goods they buy:
  • Are of acceptable quality
  • Are fit for purpose
  • Match the description, sample, or demonstration model
  • Comply with any express warranty
  • Are legally owned by the seller without any charges
  • Have spare parts reasonably available
• Consumers are guaranteed that the services they buy are:
  • Fit for purpose
  • Provided with reasonable skill and care
  • Provided within a reasonable time
• If something goes wrong, the consumer should seek a remedy from the business, usually in the form of a refund, replacement, or repair.

Responsibilities of Consumers

• Consumers have numerous responsibilities as well as many rights.
• The legal term for this acceptance of risk is caveat emptor, which is Latin for let the buyer beware.

Organizations That Provide Assistance for Consumers

• State Government: Fair Trading
• Ombudsman: Investigates and reports on complaints
• Federal Government: ACCC and ASIC
• Independent Organization: CHOICE
• The Media

NSW Fair Trading

• This is the state consumer protection agency that provides information and assistance to all consumers on areas such as consumer issues, shopping on the internet, home building, and motor vehicle sales.

Ombudsman

• An agent who has the task of investigating and reporting on complaints.

Federal Government Commissions

• Australian Securities and Investments Commission (ASIC): Protects consumers in the areas of consumer credit, investment, life and general insurance, superannuation, and banking (except lending) in Australia.
• Australian Competition and Consumer Commission (ACCC): Operates nationally for the enforcement and administration of the Competition and Consumer Act.

CHOICE

• Australia's largest consumer watchdog organization.
• It is independent, non-profit, and not tied to any political party.

Processes of Consumer Redress

Remedies and Their Outcomes

• Consumers have some basic rights.
• Under certain circumstances, a seller cannot refuse a refund or exchange.

NSW Fair Trading

• If you have tried to redress the problem and are still not satisfied, the next course of action is to contact your local NSW Fair Trading office and seek advice.
• If you wish to take it further, you must lodge a formal written complaint and ask the office to negotiate or mediate on your behalf.

NSW Civil and Administrative Tribunal

• If you are still not satisfied the problem has been redressed, you can lodge a claim with the NSW Civil and Administrative Tribunal (NCAT).
• This tribunal has the power to make the following orders to resolve a dispute:
  • Order that money owed does not have to be paid
  • Order for goods or services to be provided
  • Order faulty goods be fixed or replaced
  • Order a refund and goods to be returned

Financial Management

The Importance of Financial Management

• Acquiring, saving, and growing the necessary funds to live a full and satisfying life requires planning and management.

Consequences of Poor Financial Management

• Excessive debt:
  • Personal
  • Social
  • Legal
• The consequences of excessive debt may include:
  • Garnishee of your wages or bank accounts
  • Writ of execution
  • Bankruptcy

Impact of Debt on Wellbeing

• Financial health and overall wellbeing are linked.
• Common signs of financial stress include high blood pressure, sleeping difficulties, tiredness, mood swings, loss of appetite, headaches, arguing with people closest to you about money, psychological stress, and withdrawing from people.
• Strategies and actions to aid recovery include:
  • Creating a personal budget
  • Rolling all debts into one loan
  • Regularly depositing a little cash into a savings account
  • Setting aside money for emergencies
  • Being open to the idea of talking about money with those closest to you
  • Seeing if you can get a better plan with your bank or financial institution
  • Accessing financial assistance

Importance of Long-Term Financial Strategies

• When establishing a financial plan, it is very important to establish a set of goals.
• The three main types of plans are:
  • Short-term plans (1-3 years)
  • Medium-term plans (4-6 years)
  • Long-term plans (7+ years)

Funding Retirement Through Superannuation

• Superannuation is money that's put aside and saved while you're working.
• A superannuation fund is a compulsory savings account where each time you are paid, your employer will allocate a percentage of your income to the account.
• You should choose your own superannuation fund and not just accept the one the employer uses.
• Your decisions should be based on the fund's fees and its history of returns.

Tools and Strategies for Effective Financial Management

Importance of Monitoring and Record Keeping

• The secret to managing money is to keep accurate records of the money coming into and out of your account, monitor your balance, and minimize your expenses wherever possible.

Budgets

• Through careful budgeting, you can make sure your spending is not greater than your income.
• Setup a budget, try to save on a regular basis no matter how small the amount, keep accurate and up-to-date records, monitor your spending, and avoid overcommitments.
• A budget should follow a number of steps:
  • Calculate your total income
  • Record your expenses
  • Total your expenses
  • Compare your total income with your total expenditure
  • Assess your financial position

Savings Plans

• People save for many reasons, and these reasons change at different stages of life.
• Saving money gives some people a sense of satisfaction and pleasure.

Superannuation

• In Australia, superannuation is a compulsory savings scheme for retirement.
• You can choose between two types of superannuation funds:
  • Retail fund: Usually run by banks or investment companies.
  • Industry fund: Usually offer less choice, but any profits are returned to the members.

Options for Addressing Financial Difficulty

Personal Loans

• In Australia, customers can access personal loans from:
  • Banks
  • Credit unions
  • Building societies
  • Other financial institutions
• All are supervised by the Australian Prudential Regulatory Authority (APRA).

Negotiating Alternative Payment Plans

• Should someone experience difficulty with their repayments due to unforeseen circumstances, they have the right to apply to their credit provider for a hardship variation.
• A number of choices are available if you have to vary your loan due to hardship; these include:
  • Extending the loan period
  • Making smaller repayments over a longer period
  • Postponing repayments for an agreed period

Seeking Support

• In addition to the support offered by lending institutions, a range of other services and service organizations can help you negotiate loans and alternative payment plans.
• People who are less confident to address their own difficulties or face very complex issues can access support from other people, including:
  • Specialist financial advisers, counselors, and lawyers who are not directly associated with your financial institution.
  • Customer support and services personnel directly associated with your financial institution.
  • Counselors at government or community agencies.

Impact of Technology on Consumer Decisions

• The methods that consumers use to pay for goods and services have constantly changed over time.
• Most of the changes are due to the impact of technology.

Barter

• Before coins and notes were used, a system called barter existed, swapping or exchanging one good for another.
• The development of money overcame the problems of barter.

Money

• Money - anything people generally accept as payment in exchange for goods and services - gave consumers greater freedom in satisfying their needs and wants.

Impact of Technology

• Developments in computer technology have virtually turned Australia into a cashless society.
• Some of the current technological methods that can be used to make electronic (cashless) payment include:
  • Visa payWave and MasterCard PayPass
  • Smartphone apps

Explore consumer and financial decisions, including identifying issues, consumer protection laws, and personal financial options. Learn about responsible financial management strategies and the dynamic nature of commerce. Make informed decisions in today's competitive marketplace.